Japan’s GPIF Set to Boost Foreign Bonds as New Head Takes Charge
Japan’s GPIF Set to Boost Foreign Bonds as New Head Takes Charge
(Bloomberg) -- Masataka Miyazono is taking over as the head of the world’s largest pension fund, and will spearhead its biggest strategy change in six years with global markets facing an unprecedented crisis.
The man appointed today to head Japan’s Government Pension Investment Fund will step into the role at a time when its $1.52 trillion portfolio has been battered by a whipsaw month in markets. He will take charge with GPIF set to allocate more funds to foreign bonds, according to a person familiar with its new portfolio.
GPIF will raise its allocation of foreign bonds by 10 percentage points to 25% in its portfolio review, and cut its domestic debt allocation to the same level amid Japan’s negative interest rate environment, the person said.
The news was first reported by the Nikkei, which said the new portfolio would be announced March 31. The change would leave GPIF with a target allocation split equally between foreign and domestic stocks and bonds, the report said.
Miyazono will have to navigate the fund’s performance under its new portfolio without the aid of the highly regarded Chief Investment Officer Hiromichi Mizuno, who oversaw the GPIF’s stellar returns over the past five years and is set to depart this month. The portfolio puts GPIF on a course to pile into foreign bonds just at a time when central banks across the world are pulling yields lower with unprecedented new QE programs.
“There are no good bonds to invest in in Japan, but yields are now low in overseas markets as well,” said Ayako Sera, a market strategist at Sumitomo Mitsui Trust Bank Ltd. “The right thing to do would have been to buy bonds when long-term U.S. yields were trading around 2%, and that might be what the GPIF has been doing.”
She noted its was unclear how much the GPIF’s portfolio would actually change, since the fund stopped releasing details of its allocation breakdown last year.
Punching Bag
Miyazono, 66, is a former executive of agricultural lender and major institutional investor Norinchukin Bank and will replace Norihiro Takahashi, also a Norinchukin alum, when his term expires at the end of March. A graduate of Tokyo University’s elite law department, Miyazono spent most of his career at the farming bank before last year taking over as the head of the Pension Fund Association, a smaller government pension manager with around $100 billion in assets.
“Coming from Norinchukin, this is an appointment who will be expected to bring investment experience and insight,” said Shuichi Ohsaki, chief rates strategist at Bank of America Merrill Lynch in Tokyo. He expects the GPIF to continue its its strategy of pursuing diversified international investment under Miyazono.
Depended on for the pensions of tens of millions of retirees across the nation, the fund is politically sensitive in a nation with a rapidly aging population. Prime Minister Shinzo Abe backed a review of GPIF’s strategy in 2014 that led it to put about half of its assets in equities and cut its holdings of domestic bonds, which had been the core of its portfolio.
Despite its impressive performance since, the fund is still used as a punching bag for Abe critics, particularly when it suffers market-related losses, given the concerns of aging voters over their post-retirement financial security. In 2019 a Financial Services Agency report sparked a national furore after showing that a typical couple in their sixties may need as much as 20 million yen ($186,000) to supplement their public pensions.
CIO Hiromichi Mizuno will also step down at the end of the month, reports have said. Mizuno had been a partner at London-based private equity firm Coller Capital Ltd. before he became the first investment head of the fund in 2015, and oversaw the sweeping changes that shifted its portfolio to stocks and provided a boost to Japan’s equity market.
Mizuno also made international headlines by blasting short-sellers for “short-termism” in an interview with the Financial Times last year, after the fund chose to stop lending foreign shares. That led to praise from Elon Musk, a noted critic of short sellers who hailed the decision with the comment “short-selling should be illegal.”
Mizuno was reappointed in October for a term that ends at the end of March, amid speculation he would then leave the role. Miyazono will appoint his replacement, which must be approved by the health minister. Reports haven’t identified a successor.
Japan’s Pension Proxies Plough Record Cash Into Overseas Bonds
With interest rates in Japan below zero, the GPIF had already been giving itself leeway to buy billions of dollars more of bonds from outside its home market.The fund had 168.9 trillion yen ($1.52 trillion) in assets under management as the end of December, its most recent reported quarter, when foreign stocks had boosted its returns before the global shocks triggered this year by the spread of the coronavirus.
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